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Segment Information | 6 Months Ended
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Jun. 30, 2014
Segment Information | Note 21. Segment Information Redwood operates in three segments: residential mortgage banking, residential investments, and commercial mortgage banking and investments. These business segments have been identified based on our organizational and management structure. Our segments are based on an internally-aligned segment structure, which is how our results are monitored and performance is assessed. The accounting policies of the reportable segments are the same as those described in Note 3—Summary of Significant Accounting Policies. Our residential mortgage banking segment primarily consists of operating a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale through securitization or as whole loans. Jumbo loans we acquire are typically sold through private-label securitization through our Sequoia securitization program or to institutions that acquire pools of whole loans. Conforming loans we acquire are generally sold to the Agencies. Our residential loan acquisitions are usually made on a flow basis, after origination by banks or mortgage companies, and are periodically augmented by bulk acquisitions. Our acquisition and accumulation of residential loans is generally funded with equity and short-term debt. This segment also includes various derivative financial instruments and IO securities retained from our Sequoia securitizations that we utilize to manage certain risks associated with residential loans we acquire. Our residential mortgage banking segment’s main source of revenue is mortgage banking income, which includes valuation increases (or gains) on the loans we acquire for sale or securitization as well as valuation changes in associated derivatives and IO securities that are used in part to manage risks associated with our mortgage banking activities. Additionally, this segment may generate interest income on loans held for future sale or securitization and interest income from IO securities. Interest expense on short-term debt used to fund the purchase of residential loans, direct operating expenses and tax provisions associated with these activities are also included in the residential mortgage banking segment. Our residential investments segment includes a portfolio of investments in residential mortgage-backed securities retained from our Sequoia securitizations, as well as residential mortgage-backed securities issued by third parties. This segment also includes MSRs associated with residential loans securitized through our Sequoia program and MSRs purchased from third parties. The residential investment segment’s main sources of revenue are interest income from investment portfolio securities, as well as the realized gains recognized upon sales of these securities and income from MSRs. This segment also includes derivative financial instruments that we utilize to manage certain risks associated with our residential investment portfolio. Also included in this segment is interest expense on the short-term debt and ABS used to partially finance certain of these securities, as well as direct operating expenses and tax provisions associated with these activities. Our commercial mortgage banking and investments segment consists of our commercial mortgage banking operations as well as our portfolio of held-for-investment commercial real estate loans. We operate as a commercial real estate lender by originating mortgage loans and providing other forms of commercial real estate financing. This may include senior or subordinate mortgage loans, mezzanine loans, and other forms of financing, such as preferred equity interests in special purpose entities that own commercial real estate. We typically sell the senior loans we originate to third parties for securitization and the mezzanine and subordinate loans we originate are generally held for investment. This segment also includes derivative financial instruments that we utilize to manage certain risks associated with our commercial loan origination activity. Our commercial mortgage banking and investments segment’s main sources of revenue are interest income from our commercial loan investments as well as income from mortgage banking activities, which includes valuation increases (or gains) on the senior commercial loans we originate for sale as well as valuation changes in associated derivatives that are used to manage risks associated with our mortgage banking activities. Interest expense from our Commercial Securitization and from short-term and long-term debt used to fund the purchase of commercial loans as well as operating expenses and tax provisions associated with these activities are also included in the commercial mortgage banking and investments segment. Segment contribution represents the measure of profit that management uses to assess the performance of its business segments and make resource allocation and operating decisions. Certain expenses not directly assigned or allocated to one of the three primary segments, as well as activity from certain legacy Sequoia entities consolidated for GAAP financial reporting purposes, are included in the Corporate/Other column as reconciling items to our consolidated financial statements. These unallocated expenses primarily include interest expense associated with certain long-term debt, indirect operating expenses, and other expense. The following tables present financial information by segment for the three and six months ended June 30, 2014 and 2013. Business Segment Financial Information
|  | Three Months Ended June 30, 2014 |
(In Thousands) |  | Residential Mortgage Banking |  |  | Residential Investments |  |  | Commercial Mortgage Banking and Investments |  |  | Corporate/ Other |  |  | Total |
Interest income |  | $ | 12,438 |  |  | $ | 27,924 |  |  | $ | 11,217 |  |  | $ | 6,414 |  |  | $ | 57,993 |
Interest expense |  |  | (2,161) |  |  |  | (3,116) |  |  |  | (4,404) |  |  |  | (11,470) |  |  |  | (21,151) |
Net interest income (loss) |  |  | 10,277 |  |  |  | 24,808 |  |  |  | 6,813 |  |  |  | (5,056) |  |  |  | 36,842 |
Reversal of provision (provision) for loan losses |  |  | - |  |  |  | - |  |  |  | (289) |  |  |  | 604 |  |  |  | 315 |
Mortgage banking activities, net |  |  | 1,329 |  |  |  | - |  |  |  | 4,981 |  |  |  | - |  |  |  | 6,310 |
MSR income (loss), net |  |  | - |  |  |  | (1,777) |  |  |  | - |  |  |  | - |  |  |  | (1,777) |
Other market valuation adjustments, net |  |  | 13 |  |  |  | (3,788) |  |  |  | - |  |  |  | (346) |  |  |  | (4,121) |
Realized gains, net |  |  | - |  |  |  | 992 |  |  |  | - |  |  |  | 71 |  |  |  | 1,063 |
Operating expenses |  |  | (9,501) |  |  |  | (770) |  |  |  | (2,180) |  |  |  | (9,831) |  |  |  | (22,282) |
(Provision for) benefit from income taxes |  |  | 259 |  |  |  | 149 |  |  |  | (750) |  |  |  | 9 |  |  |  | (333) |
Segment Contribution |  | $ | 2,377 |  |  | $ | 19,614 |  |  | $ | 8,575 |  |  | $ | (14,549) |  |  |  |  |
Net Income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 16,017 |
Non-cash amortization income (expense) |  |  | (36) |  |  |  | 10,586 |  |  |  | (215) |  |  |  | (2,073) |  |  |  | 8,262 |
|  | Three Months Ended June 30, 2013 |
(In Thousands) |  | Residential Mortgage Banking |  |  | Residential Investments |  |  | Commercial Mortgage Banking and Investments |  |  | Corporate/ Other |  |  | Total |
Interest income |  | $ | 15,158 |  |  | $ | 24,015 |  |  | $ | 9,623 |  |  | $ | 8,923 |  |  | $ | 57,719 |
Interest expense |  |  | (3,020) |  |  |  | (2,553) |  |  |  | (2,560) |  |  |  | (13,283) |  |  |  | (21,416) |
Net interest income (loss) |  |  | 12,138 |  |  |  | 21,462 |  |  |  | 7,063 |  |  |  | (4,360) |  |  |  | 36,303 |
Reversal of provision (provision) for loan losses |  |  | - |  |  |  | - |  |  |  | (891) |  |  |  | 4,163 |  |  |  | 3,272 |
Mortgage banking activities, net |  |  | 42,290 |  |  |  | - |  |  |  | 6,433 |  |  |  | - |  |  |  | 48,723 |
MSR income (loss), net |  |  | - |  |  |  | 10,547 |  |  |  | - |  |  |  | - |  |  |  | 10,547 |
Other market valuation adjustments, net |  |  | 38 |  |  |  | (5,738) |  |  |  | - |  |  |  | (558) |  |  |  | (6,258) |
Realized gains, net |  |  | - |  |  |  | 526 |  |  |  | - |  |  |  | 30 |  |  |  | 556 |
Operating expenses |  |  | (6,053) |  |  |  | (1,956) |  |  |  | (2,654) |  |  |  | (13,767) |  |  |  | (24,430) |
(Provision for) benefit from income taxes |  |  | (2,409) |  |  |  | (1,236) |  |  |  | (495) |  |  |  | 1,000 |  |  |  | (3,140) |
Segment Contribution |  | $ | 46,004 |  |  | $ | 23,605 |  |  | $ | 9,456 |  |  | $ | (13,492) |  |  |  |  |
Net Income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 65,573 |
Non-cash amortization income (expense) |  |  | (13) |  |  |  | 8,066 |  |  |  | (224) |  |  |  | (2,084) |  |  |  | 5,745 |
|  | Six Months Ended June 30, 2014 |
(In Thousands) |  | Residential Mortgage Banking |  |  | Residential Investments |  |  | Commercial Mortgage Banking and Investments |  |  | Corporate/ Other |  |  | Total |
Interest income |  | $ | 23,104 |  |  | $ | 55,519 |  |  | $ | 21,601 |  |  | $ | 13,245 |  |  | $ | 113,469 |
Interest expense |  |  | (3,482) |  |  |  | (5,966) |  |  |  | (7,708) |  |  |  | (23,055) |  |  |  | (40,211) |
Net interest income (loss) |  |  | 19,622 |  |  |  | 49,553 |  |  |  | 13,893 |  |  |  | (9,810) |  |  |  | 73,258 |
Provision for loan losses |  |  | - |  |  |  | - |  |  |  | (944) |  |  |  | (23) |  |  |  | (967) |
Mortgage banking activities, net |  |  | 265 |  |  |  | - |  |  |  | 5,814 |  |  |  | - |  |  |  | 6,079 |
MSR income (loss), net |  |  | - |  |  |  | (1,171) |  |  |  | - |  |  |  | - |  |  |  | (1,171) |
Other market valuation adjustments, net |  |  | 11 |  |  |  | (9,746) |  |  |  | - |  |  |  | (525) |  |  |  | (10,260) |
Realized gains, net |  |  | - |  |  |  | 1,979 |  |  |  | - |  |  |  | 176 |  |  |  | 2,155 |
Operating expenses |  |  | (16,595) |  |  |  | (1,865) |  |  |  | (4,806) |  |  |  | (18,988) |  |  |  | (42,254) |
(Provision for) benefit from income taxes |  |  | 94 |  |  |  | 1,676 |  |  |  | (395) |  |  |  | 135 |  |  |  | 1,510 |
Segment Contribution |  | $ | 3,397 |  |  | $ | 40,426 |  |  | $ | 13,562 |  |  | $ | (29,035) |  |  |  |  |
Net Income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 28,350 |
Non-cash amortization income (expense) |  |  | (88) |  |  |  | 21,833 |  |  |  | (388) |  |  |  | (4,019) |  |  |  | 17,338 |
|  | Six Months Ended June 30, 2013 |
(In Thousands) |  | Residential Mortgage Banking |  |  | Residential Investments |  |  | Commercial Mortgage Banking and Investments |  |  | Corporate/ Other |  |  | Total |
Interest income |  | $ | 24,914 |  |  | $ | 47,533 |  |  | $ | 19,794 |  |  | $ | 19,002 |  |  | $ | 111,243 |
Interest expense |  |  | (5,130) |  |  |  | (5,219) |  |  |  | (5,368) |  |  |  | (24,001) |  |  |  | (39,718) |
Net interest income (loss) |  |  | 19,784 |  |  |  | 42,314 |  |  |  | 14,426 |  |  |  | (4,999) |  |  |  | 71,525 |
Reversal of provision (provision) for loan losses |  |  | - |  |  |  | - |  |  |  | (1,576) |  |  |  | 2,809 |  |  |  | 1,233 |
Mortgage banking activities, net |  |  | 81,514 |  |  |  | - |  |  |  | 12,746 |  |  |  | - |  |  |  | 94,260 |
MSR income (loss), net |  |  | - |  |  |  | 11,568 |  |  |  | - |  |  |  | - |  |  |  | 11,568 |
Other market valuation adjustments, net |  |  | 78 |  |  |  | (6,308) |  |  |  | - |  |  |  | (331) |  |  |  | (6,561) |
Realized gains, net |  |  | - |  |  |  | 12,564 |  |  |  | 210 |  |  |  | 49 |  |  |  | 12,823 |
Operating expenses |  |  | (10,691) |  |  |  | (3,539) |  |  |  | (5,850) |  |  |  | (24,536) |  |  |  | (44,616) |
(Provision for) benefit from income taxes |  |  | (11,314) |  |  |  | (1,661) |  |  |  | (1,718) |  |  |  | 644 |  |  |  | (14,049) |
Segment Contribution |  | $ | 79,371 |  |  | $ | 54,938 |  |  | $ | 18,238 |  |  | $ | (26,364) |  |  |  |  |
Net Income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 126,183 |
Non-cash amortization income (expense) |  |  | (119) |  |  |  | 15,646 |  |  |  | (411) |  |  |  | (3,381) |  |  |  | 11,735 |
The following tables present the components of Corporate/Other for the three and six months ended June 30, 2014 and 2013.
|  | Three Months Ended June 30, |
|  | 2014 |  |  | 2013 |
(In Thousands) |  | Legacy Consolidated VIEs |  |  | Other |  |  | Total |  |  | Legacy Consolidated VIEs |  |  | Other |  |  | Total |
Interest income |  | $ | 6,411 |  |  | $ | 3 |  |  | $ | 6,414 |  |  | $ | 8,786 |  |  | $ | 137 |  |  | $ | 8,923 |
Interest expense |  |  | (5,240) |  |  |  | (6,230) |  |  |  | (11,470) |  |  |  | (6,728) |  |  |  | (6,555) |  |  |  | (13,283) |
Net interest income (loss) |  |  | 1,171 |  |  |  | (6,227) |  |  |  | (5,056) |  |  |  | 2,058 |  |  |  | (6,418) |  |  |  | (4,360) |
Reversal of provision for loan losses |  |  | 604 |  |  |  | - |  |  |  | 604 |  |  |  | 4,163 |  |  |  | - |  |  |  | 4,163 |
Mortgage banking activities, net |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
MSR income, net |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Other market valuation adjustments, net |  |  | (321) |  |  |  | (25) |  |  |  | (346) |  |  |  | (558) |  |  |  | - |  |  |  | (558) |
Realized gains, net |  |  | 71 |  |  |  | - |  |  |  | 71 |  |  |  | 30 |  |  |  | - |  |  |  | 30 |
Operating expenses |  |  | (42) |  |  |  | (9,789) |  |  |  | (9,831) |  |  |  | (73) |  |  |  | (13,694) |  |  |  | (13,767) |
Benefit from income taxes |  |  | - |  |  |  | 9 |  |  |  | 9 |  |  |  | - |  |  |  | 1,000 |  |  |  | 1,000 |
Total |  | $ | 1,483 |  |  | $ | (16,032) |  |  | $ | (14,549) |  |  | $ | 5,620 |  |  | $ | (19,111) |  |  | $ | (13,492) |
Non-cash amortization expense |  |  | (1,432) |  |  |  | (641) |  |  |  | (2,073) |  |  |  | (1,561) |  |  |  | (523) |  |  |  | (2,084) |
|  | Six Months Ended June 30, |
|  | 2014 |  |  | 2013 |
(In Thousands) |  | Legacy Consolidated VIEs |  |  | Other |  |  | Total |  |  | Legacy Consolidated VIEs |  |  | Other |  |  | Total |
Interest income |  | $ | 13,240 |  |  | $ | 5 |  |  | $ | 13,245 |  |  | $ | 18,853 |  |  | $ | 149 |  |  | $ | 19,002 |
Interest expense |  |  | (10,699) |  |  |  | (12,356) |  |  |  | (23,055) |  |  |  | (13,997) |  |  |  | (10,004) |  |  |  | (24,001) |
Net interest income (loss) |  |  | 2,541 |  |  |  | (12,351) |  |  |  | (9,810) |  |  |  | 4,856 |  |  |  | (9,855) |  |  |  | (4,999) |
Reversal of provision (provision) for loan losses |  |  | (23) |  |  |  | - |  |  |  | (23) |  |  |  | 2,809 |  |  |  | - |  |  |  | 2,809 |
Mortgage banking activities, net |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
MSR income), net |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Other market valuation adjustments, net |  |  | (464) |  |  |  | (61) |  |  |  | (525) |  |  |  | (331) |  |  |  | - |  |  |  | (331) |
Realized gains, net |  |  | 176 |  |  |  | - |  |  |  | 176 |  |  |  | 49 |  |  |  | - |  |  |  | 49 |
Operating expenses |  |  | (94) |  |  |  | (18,894) |  |  |  | (18,988) |  |  |  | (107) |  |  |  | (24,429) |  |  |  | (24,536) |
Benefit from income taxes |  |  | - |  |  |  | 135 |  |  |  | 135 |  |  |  | - |  |  |  | 644 |  |  |  | 644 |
Total |  | $ | 2,136 |  |  | $ | (31,171) |  |  | $ | (29,035) |  |  | $ | 7,276 |  |  | $ | (33,640) |  |  | $ | (26,364) |
Non-cash amortization expense |  |  | (2,795) |  |  |  | (1,224) |  |  |  | (4,019) |  |  |  | (2,664) |  |  |  | (717) |  |  |  | (3,381) |
The following table presents supplemental information by segment at June 30, 2014 and December 31, 2013. Supplemental Disclosures
(In Thousands) |  | Residential Mortgage Banking |  |  | Residential Investments |  |  | Commercial Mortgage Banking and Investments |  |  | Corporate/ Other |  |  | Total |
June 30, 2014 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential loans, held-for-sale |  | $ | 1,107,877 |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 1,107,877 |
Residential loans, held-for-investment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,616,504 |  |  |  | 1,616,504 |
Commercial loans |  |  | - |  |  |  | - |  |  |  | 468,766 |  |  |  | - |  |  |  | 468,766 |
Real estate securities |  |  | 159,311 |  |  |  | 1,685,756 |  |  |  | - |  |  |  | - |  |  |  | 1,845,067 |
Mortgage servicing rights |  |  | - |  |  |  | 71,225 |  |  |  | - |  |  |  | - |  |  |  | 71,225 |
Total assets |  |  | 1,291,983 |  |  |  | 1,774,525 |  |  |  | 474,821 |  |  |  | 1,837,221 |  |  |  | 5,378,550 |
December 31, 2013 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential loans, held-for-sale |  | $ | 404,267 |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 404,267 |
Residential loans, held-for-investment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,762,167 |  |  |  | 1,762,167 |
Commercial loans |  |  | - |  |  |  | - |  |  |  | 432,455 |  |  |  | - |  |  |  | 432,455 |
Real estate securities |  |  | 110,505 |  |  |  | 1,572,356 |  |  |  | - |  |  |  | - |  |  |  | 1,682,861 |
Mortgage servicing rights |  |  | - |  |  |  | 64,824 |  |  |  | - |  |  |  | - |  |  |  | 64,824 |
Total assets |  |  | 531,092 |  |  |  | 1,655,209 |  |  |  | 439,139 |  |  |  | 1,983,088 |  |  |  | 4,608,528 |

X
- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 29 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8864-108599 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 32 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8933-108599 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 26 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8844-108599 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8538-108599 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8380-108599 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 34 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8981-108599 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 35 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8984-108599 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 41 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e9038-108599 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8906-108599 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 42 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e9054-108599 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 31 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8924-108599 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 40 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e9031-108599 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 33 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8971-108599 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 12 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8595-108599 + Details
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